Inventory:

Stocks continue to trade based on the possibility of further Fed easing and a full QE3. When Bernanke hints at further easing, stocks soar, and when he suggests the economy is strong enough not to need it, stocks plunge. Of course it should be the other way around. I expect the economy to weaken in a few months as the effects of QE2 wear off and QE3 slowly transitions from fantasy to reality. Also, this is an election year and don’t underestimate the power of a sitting president seeking re-election.

Investors should prepare for a market spike later this year or early next year due to:

• Bull markets typically average 39 months, and we are in month 38
• The fourth year of a presidential cycle is usually strong
• QE3 will drive inflation too high for further easing, and after the election, there will be little political will to increase the deficit any further.

real estate

Home prices continue to decline slowly, even though the economy is as strong as it has been for years and mortgage rates have been at record lows. Now that the auto signature scandal has been resolved, the massive backlog of 1.6 million potential foreclosures will accelerate again this year. This will keep home prices stable or low for years to come. If the banks start to feel that containing foreclosures is a losing game with no signs of rising home prices, they will rush to start dumping them on the market and the vicious cycle will continue.

Entry-level homes will be the best when eco-boomers, the children of the baby boomers, enter their early-stage home-buying in large numbers around 2015. Mid- and high-end homes will continue to come under pressure. It is a good time to buy a house to live in, but not to invest. If you need a home loan or refinance let me know. We make mortgages for our customers

Economy

An economy needs more spenders to grow. People spend the most between the ages of 30 and 40, with peak spending occurring around age 48. Populations across the developed world are aging rapidly, and by the end of the year all baby boomers will be over 50 years old. Add this demographic challenge to an already massively over-indebted population with no purchasing power, and we have a colossal headwind for our economy for several more years. That is why unemployment remains stubbornly high. We just don’t need to produce as many things as we used to.

Economic stimulus may mask it for a while, but eventually the government will be forced to stop borrowing to print new money and the burden of servicing the debt becomes too great for the economy to bear. These same issues, as well as investor strategies, are at the core of what Facing Goliath: How to succeed in the dangerous market ahead is about.